New Strategies for Better Deals

IT managers are in a strong position to negotiate with software vendors and get more for their money.

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Recession or no recession, vendors still play hardball at the negotiating table, of course. They might cut you a deal upfront but also include clauses that hamstring your ability to renegotiate later -- such as eliminating volume discounts when you give back licenses, says Wang.

First Steps: Analyze, Streamline

Assessing your software assets and monitoring utilization are crucial first steps for negotiations (and, later, contract compliance audits).

Before sending out requests for proposals, businesses need to analyze their software needs and streamline those needs as much as possible, says Gartner analyst Bill Snyder. He recommends that users answer these two questions: "Is there a cheaper alternative? And do we need all of these features and functions?"

The ability to predict software needs is critical when it comes to long-term negotiations, Snyder says, because once you deploy a vendor's ERP or database system companywide, you're effectively in a monopoly relationship. If you purchase too few licenses, you'll have to buy more later, losing out on volume discounts. If you buy too many, you're paying maintenance and support costs for shelfware -- software that sits unused.

Anticipating software needs more than a year or two ahead can be tricky, however. For example, 20/20 Companies, a sales-personnel outsourcer, originally purchased 300 end-user licenses for Force.com, Salesforce.com Inc.'s hosted application development software. From there, 20/20 went up to 500 licenses, which it quickly exceeded and expanded to 900. "Edging up means no volume discount," warns Mark Warren, 20/20's acting CIO.

"You absolutely need to figure out your business software goals upfront," says Thomas Jefferson, former vice president of business technology at TMP Directional Marketing LLC. While at TMP, he had monthly planning meetings with the CEO, the CEO's direct reports and several business managers. "We would go over what we're doing, where we're going, and make sure this strategy is reflected in the overall IT road map," says Jefferson.

TMP has been discussing the potential business benefits and cost trade-offs of implementing a document management system, according to Jefferson. (A current TMP IT executive confirms that.) This would cut document access time and improve customer service, but it would also require an expansion of storage and storage-area network capacity and the purchase of additional licenses for storage software, databases and client data access applications, Jefferson notes.

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